New Delhi, 27 Mar

The government has slashed excise duty on petrol and diesel by Rs 10 per litre each, a move aimed at shielding domestic consumers from a surge in global oil prices triggered by the Middle East conflict, at an estimated revenue cost of Rs 1.75 lakh crore.

Alongside, the government brought back duties on export of diesel and aviation turbine fuel (ATF).

Special additional excise duty on petrol has been cut from Rs 13 a litre to Rs 3 and the same on diesel from Rs 10 per litre to nil, according to a notification issued late on Thursday.

Alongside, the government imposed an export duty of Rs 21.5 per litre on diesel and Rs 29.5 per litre on aviation turbine fuel (ATF), reinstating a levy first introduced in July 2022 to curb windfall gains by refiners following Russia's invasion of Ukraine and later withdrawn in December 2024.

However, unlike last time, there is no windfall tax that has been levied on domestic crude oil producers like ONGC.

After the reduction in excise duty, the incidence of excise duty on petrol will be Rs 11.9 per litre (Rs 1.40 basic excise duty, Rs 3 special additional excise duty, Rs 2.50 agriculture infrastructure and development cess and Rs 5 road and infrastructure cess).

On diesel the incidence will be Rs 7.80 per litre (Rs 1.80 basis excise duty, Rs 4 agriculture infrastructure and development cess and Rs 2 road and infrastructure cess).

Considering 175 billion litre of auto fuel sales annually (115 billion litres of diesel and 60 billion litres of petrol), the impact of the duty cut would be Rs 1.75 lakh crore annually.

The excise duty cut follows record losses that oil companies suffered from the surge in international oil prices. Prices of crude oil, the raw material for making petrol and diesel, have surged almost 50 per cent this month as the US and Israel attack on Iran and Tehran's sweeping retaliation disrupts global supply.

Despite oil prices rising above USD 100 per barrel, retail pump rates had remained on freeze. This had led to oil companies incurring record losses which had even started impacting their working capital.

To ease the pain, the government cut excise duty. The reduction will be adjusted against the Rs 24 a litre required increase in petrol and Rs 30 per litre hike in diesel rates warranted due to the rise in international oil prices.

Rating agency ICRA, in a note on Thursday, had said if the average crude oil price goes up to USD 100-105 per barrel, fuel retailers would incur a loss of Rs 11 per litre on petrol and Rs 14 per litre on diesel, respectively.

International oil prices touched USD 119 per barrel earlier this month on the intensifying Iran war, before pulling back to around USD 100 a barrel.

The first signs of stress came when NayaraEnergy, the country's largest private fuel retailer, raised petrol price by Rs 5 per litre and diesel by Rs 3 a litre on Thursday. Petrol at Nayara pumps now costs Rs 100.71 a litre and diesel costs Rs 91.31 per litre.

State-owned fuel retailers, who control about 90 per cent of the market, continue to keep rates frozen. A litre of normal petrol in Delhi continues to cost Rs 94.77 at their outlets, while the same grade diesel comes for Rs 87.67 a litre.

Finance Minister Nirmala Sitharaman in a post on X said the reduction in excise duty "will provide protection to consumers from rise in prices".

The government, she said, has always ensured that citizens are protected from vagaries of supply and costs of essential goods.

"Further, duties have been imposed on exports of diesel at Rs 21.5 per litre and on ATF at Rs 29.5 per litre. This will ensure adequate availability of these products for domestic consumption," she added.